Refiners Face ‘Real Stinker’ U.S. Fuel Credits: Chart of the Day

Commodities handler Josh Rohr installs a U.S. Department of Transportation placard used to identify tankers transporting denatured alcohol, or ethanol, on a rail car in Underwood, North Dakota. Photographer: Daniel Acker/Bloomberg

March 14 (Bloomberg) -- Surging prices for credits that
allow oil refiners to meet U.S. renewable-fuel regulations are
separating the industry into winners and losers, according to
Chi Chow, a Macquarie Group Ltd. analyst.

The CHART OF THE DAY displays the price of credits from
blending gasoline with ethanol, along with those for biodiesel
and advanced biofuel. The data was compiled by Starfuels Inc.,
an energy brokerage based in White Plains, New York, for what
are known as renewable identification number credits.

Prices for ethanol-related credits have soared as much as
15-fold since January. They rose above $1 a gallon last week,
and so did their biodiesel and advanced biofuel counterparts.

The price increases are “a potential real stinker of an
issue” for refiners that satisfy the Environmental Protection
Agency’s standard by buying credits, Chow wrote yesterday in a
report. In response, he cut ratings on shares of Valero Energy
Corp., the world’s largest independent refiner by processing
capacity, and HollyFrontier Corp. as well as CVR Energy Inc.,
controlled by billionaire Carl Icahn.

Refiners with the capability of blending ethanol into
gasoline are in a better position, the Denver-based analyst
wrote, because they can earn credits through their operations.
The report cited Marathon Petroleum Corp., Northern Tier Energy
LP, Tesoro Corp. and Western Refining Inc. as examples.

Even so, the cost of complying with the renewable-fuel
program “is threatening to derail the bull run” in refining
stocks, Chow wrote. A Standard & Poor’s index of refiners and
gasoline-station owners dropped in six of the past seven days
after more than doubling from a low set on June 4.